Is a grand bargain out of reach?
By: Manu Raju and John Bresnahan July 29, 2013 07:33 PM EDT

They’ve been wined and dined by President Barack Obama, spoken repeatedly with the White House chief of staff and met privately in the Capitol.

But after months of talking, the grand bargain between the White House and congressional Republicans is just as elusive as ever.

As fall approaches, White House chief of staff Denis McDonough has met frequently with Republican senators in the hopes of finding consensus on an overarching fiscal deal. But the two sides are stuck in the same-old tax-and-spending debate — Democrats want to raise revenue, while Republicans refuse.

The lack of progress underscores a growing belief in Washington: The long-sought grand bargain could very well be out of reach during the Obama presidency.

The negotiations come against the backdrop of a double dose of fiscal drama — Congress must act to continue government spending by Sept. 30, or a government shutdown could ensue, and the debt ceiling must be hiked or the country could go into default sometime this fall.

A short-term solution to the country’s fiscal woes seems more likely, but even that may not happen.

Senators said Monday evening that a decision needs to be made: Should the two sides continue to focus on the grand bargain — a major reform of tax and entitlement programs — or instead on a much smaller goal of reforming the automatic sequestration cuts.

“We’re a sounding board for our conference, so our conference is going to have to be on board with whatever we do,” Sen. John Hoeven (R-N.D.) said Monday. “The administration still wants higher taxes. I’m telling you: That’s a problem. For our conference, that’s a problem.”

Sen. Saxby Chambliss (R-Ga.) said there are still “major hurdles” despite the pressure to reform entitlement programs and the Tax Code.

“I’m not too optimistic at this point that we’re going to get there,” he said.

Talks will continue this week, and there is still time to avoid a budget crisis, particularly as fall approaches and fear increases among GOP defense hawks about the deepening sequester cuts affecting the military.

Last week, McDonough, his deputy Rob Nabors and budget director Sylvia Mathews Burwell met twice privately with Senate Republicans, representing an uptick in talks after they had mostly stalled in June.

But in last week’s meetings, Republicans continued to resist White House demands for higher revenue as part of a fiscal deal, instead calling for a new round of cuts to replace the automatic spending reductions known as sequestration that kicked in earlier this year, sources familiar with the talks said.

“Within the meetings of the Senate Republicans, there probably are nine or 10 different opinions about what we should do,” said one source familiar with the meeting.

Sen. Bob Corker, the Tennessee Republican, said there was a “pretty productive” meeting last week, and disputed assertions that the two sides were at an impasse. He added that the group is akin to a “sounding board” and isn’t horse-trading policy proposals.

Yet, he suggested the talks were at a crossroads.

“I think we’re at a point where a decision has to be made: Is our goal to try to substitute mandatory spending reductions for the sequester?” Corker said. “So is that what our discussion [is] about? Or [is] our discussion about doing something much bigger than that?”

Republicans and the White House both agree on proposals to cut Social Security known as chained CPI, referring to reduced payments to beneficiaries because of how annual cost-of-living adjustments are calculated. And the two sides seem to be on the same page regarding reducing benefits that wealthy seniors now receive from entitlement programs, a proposal known as means testing.

But the White House wants new taxes in exchange for those entitlement cuts, something at which the GOP continues to balk. And Republicans have pushed for the two sides to agree on going beyond the typical 10-year budget projections and instead examine how much the budget picture will worsen over the next 30 years. But the White House is resisting a 30-year budget projection, believing the numbers are unrealistic.

After Obama’s budget talks with House Speaker John Boehner floundered, the White House set its sights on a deal-making group of Senate Republicans, including Corker, Chambliss and Hoeven, as well as John McCain of Arizona, Lindsey Graham of South Carolina, Johnny Isakson of Georgia, Kelly Ayotte of New Hampshire, and Dan Coats of Indiana.

There is still the possibility that the White House could forge a consensus with McCain and Graham, given they appear to be the most open to raising revenues because of fear of the sequester’s impact on the military.

Indeed, at one of the meetings last week, discussion revolved around the increasing likelihood of deepening defense cuts in the coming fiscal year. If Congress adopts a continuing resolution that funds the government in the new fiscal year at under $1 trillion levels, the sequester would slice $21 billion out of defense spending — while non-defense programs would actually result in a $1 billion increase, they said.

On Monday, McCain said he’s long been open to eliminating tax deductions, such as sugar subsidies, which would effectively raise revenue. And he said while there’s a push to overhaul the sequester, there’s “no cohesion yet” on how to achieve just that.

“There’s a sense of urgency that there’s not been over the years,” McCain said. “We know how serious the sequester is damaging the country, we know that this cliff is approaching. We know how the debt limit is going ot have to be addressed. So there’s some increased urgency.”

Asked about the prospects for a deal, McCain said: “Many times you talk and talk and talk, and nothing happens. And other times, you talk and talk and talk, and you get a result. But it’s worth talking.”

Still, complicating matters is that the group doesn’t want to be perceived as undermining Senate Minority Leader Mitch McConnell (R-Ky.). GOP senators have said publicly and privately that the group is not negotiating a budget deal with the White House, nor are they trading policy proposals. They are simply discussing various budget options and seeing if there’s a consensus. Another meeting is scheduled for later this week.

Indeed, the common feeling within the room is that there is no consensus yet on a grand bargain — and there may never be.

Even if the group reaches a deal with the White House, it’s hardly clear new taxes could win over any additional Republicans — in the House and Senate. And a White House offer on entitlements would turn off scores of Democrats who have vowed to protect the social safety net programs.

Without a grand bargain, to cut deficits by about $4 trillion over the next decade, Congress and the White House may instead simply try to find a way to prevent the government from shutting down in October. But the House GOP and the Senate Democrats remain tens of billions of dollars apart. And as Republicans are demanding fresh spending cuts in order to increase the debt ceiling, the White House and Senate Democrats say they will only pass a debt ceiling increase with no strings attached.

Graham, a consummate deal maker, said: “I’m not going to raise the debt ceiling unless we address why we’re in debt. That means things like entitlements.”

Speaking to reporters Monday, White House spokesman Josh Earnest warned of the consequences if the two sides failed to avert a government shutdown

“So, a government shutdown or a showdown over the debt limit, that’s not going to be in the best interest of our economy,” Earnest said at the White House. “We saw in 2011 the terrible impact that that would have on our economy; it would have a terrible impact on certainty. And that is something that we want to avoid.”

Still, there is a political imperative for the two sides to continue talking. Neither side wants to break off talks and appear as if they aren’t trying to compromise. So the talks are bound to continue, senators said, something that began after Obama held a series of dinner meetings beginning at the Jefferson Hotel in March.

Isakson, who organized a subsequent dinner meeting with Obama, said overhauling the sequester would require some “structural and fundamental” entitlement reform.

Asked about new taxes, Isakson said: “I want to raise prosperity in America. Our revenues go up when you raise the prosperity of the American people.”